CTO Corner

The CTO Corner is a monthly newsletter highlighting interesting trends and technologies of interest to the financial services industry. It does not necessarily reflect the official views of BITS, FSR or our member companies.

Augmented Intelligence (effectively partnering AI with humans) can help AI systems realize their full potential, and overcome privacy, security and regulatory concerns, provided workers can master the necessary skills and overcome resistance to change.

Most FinTech start-ups are targeting traditional banking functions, such as payment innovations, robo-advisors, and peer-to-peer lending, but the insurance industry will likewise be impacted by global technology and business innovation trends. The insurance industry is an attractive opportunity for technology start-ups because of its huge revenue base (U.S. insurance industry’s net premiums totaled $1.1 trillion in 2014) and complex network ecosystems.

With the convergence of mobility and the rapidly advancing landscape of “Internet of Things”, FinTech applications are changing the way financial services and products are built and delivered. New applications increasingly are being developed in open source collaborative communities, using Applications Programming Interfaces (APIs), specifications describing how software components should interact. This CTO Corner discusses the movement towards Open Finance APIs, why they matter, and both the threat and opportunity they pose to legacy financial institutions.

2015 was a banner year for data breaches, culminating in December 2015 when 191 million registered voters’ sensitive personal information (names, home addresses, voter IDs, phone numbers, dates of birth, political affiliations, and voting history) was revealed. With the accumulation of this large data base of sensitive personal information, it is likely that 2016 will be considered the “year of the exploit” as we see a shift to higher-impact, identity-impersonation cybercrime taking advantage of the sensitive data accumulated in 2015 (Evidence of this is already occurring).

2015 was marked by an explosion of blockchain announcements by start-ups and incumbents. Investors claim blockchain is a break-through technology that can be used to enable peer-to-peer exchange of anything of value, including assets, property, and contracts, using cryptography in lieu of trusted intermediaries. As more companies announce their future plans for blockchain, interest is reaching a tipping point, but the fear of disintermediation is also a reality.

The financial sector is no stranger to change and disruption (from bartering to coins and paper money, to stocks and mutual funds) but the explosion of financial services technology (FinTech) start-ups is accelerating change at an exponential pace. In the past, changes took place over decades. Now, many occur in a single year or even shorter timeframes. This CTO Corner discusses the resulting accelerated perceived democratization of financial services, which is causing a Cambrian explosion of new access and forms of financial products and services, and its implications on the business, security, privacy, and regulation of financial services.

In 2007, each person had an average of 6.5 passwords that they used for 25 different online accounts (each password being recycled about four times creating a security issue). By 2014, the average reportedly grew to 19, used to access accounts across desktop computers, smartphones and tablet computers, with the looming Internet of things promising to dramatically further aggravate the problem, posing a major security and a usability issue.

This CTO Corner discusses likely changes in Identity Management and concludes that an identity layer of protection built on top of today’s Internet and mobile platforms is imminent. This will require stronger authentication technology, but what that technology looks like is still unknown.

Last month, we took a retrospective look at the evolution of cybersecurity and the increasingly active role played by FSR’s BITS and other financial trade associations. The second part of the series focuses on steps the financial services sector should consider to get ahead in the cybersecurity game by adding clarity and removing impediments to adapting new cyber defense tactics and techniques. To change the dynamics it is critical that in addition to tactics and technologies already being employed, our sector seizes the initiative and takes advantage of the cyber asymmetries that favor the attacker.

As the Internet has grown in popularity and commercial use, so has the threat and sophistication of cyber attacks.
Threats now include the blurring of malware, new technology and other tactics that is practiced by criminals, hacktivists and even nation states, all of which can have devastating consequences for consumers, the economy and our national security.

“This industry provides vitally important services to nearly every American – every day. Affordable access to financial services is key to growing the American economy and fueling the American dream.” -Tim Pawlenty, FSR CEO

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